U.S. housing market headed for double-dip decline

"U.S. housing prices are headed for a double-dip decline that will hurt related equities which have already priced in a recovery in the sector, CIBC warns" in this article.

There are really two aspects to this article.  The first is "equities that have already priced in a recovery" to which the reference is really focusing on stock market related activities.  The point is clearly made that we currently have an artifically enhanced housing market that many have incorrectly taken as a sign of sustainable recovery.

The second has them, "calling for another decline in [home] prices of five to 10 per cent over the next two years."

On the whole, I think I have to agree with the prognosis.  However, there are a couple of factors that really need to be considered.  The most important of which is location.  And I'm not referring to the location, location, location of the great home with a great view in the great neighborhood in a great school system sold by a great agent - no, wait, the #1 agent.  (Aren't they all?)  In this case, the major concern is where the economic strength lies that will retain or generate jobs.  All areas are not equal.  Some still have a year-plus of inventory while others are in a fight-for-your-life seller's market (and not simply because of the tax credit - but because the investors like what they see).

The second key point is interest rates.  I'm sure I've written about this before, somewhere, and likely will again.  But, if you have a long time horizon, then your decisions should be based more on interest rates than on price.  For simple calculation purposes, a 1% increase in the interest rate equates to about a 10% decrease in price.  Now, admittedly it is a bit of a guessing game, but, do you believe interest rates will go up more than 1% or that prices will decline by more than 10%?

Your mileage will vary... but in my area, I expect a minimal decrease, if any, in most price ranges. But I definitely expect a 1%-plus interest rate increase.  In which case, my advice to my San Diego clients is to buy now before rates jump.